| Summary: | International trade produces income gains across the world by facilitating an efficient allocation of production among trading countries. However, increased trade exposure also creates some challenges, and there are adjustment costs associated with changing trade patterns. Effective complementary policies, by promoting flexibility and adaptation within economies, can reduce adjustment costs associated with increased trade, and therefore ensure the benefits are maximised. This paper highlights these issues with reference to recent experience in Australia. Computable General Equilibrium modelling shows how the recent improvement in Australia's terms of trade is likely to have increased incomes and that the magnitude of these gains is directly linked to the degree of flexibility of the economy
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